Term
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Definition
| An asset that generates a return. |
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Definition
| Investment returns received directly from the organization in which you invested. |
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Definition
| An asset whose value depends solely on supply and demand, as opposed to being based on the return that it generates. |
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Definition
| Securities whose value is derived from the value of other assets. |
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Term
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Definition
| 1) Lending Investments (i.e. savings accounts & bonds), 2) Ownership Investments (i.e. common stock or real estate). |
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Definition
| The date at which the borrower must repay the loan or borrowed funds. |
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Definition
| The stated amount on the face value of a bond, which the firm is to repay at maturity. |
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Definition
| The interest to be paid annually on a bond as a percentage of par value. |
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Definition
| A fractional ownership in a corporation. |
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Definition
| A payment by a corporation to its shareholders. |
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Term
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Definition
| The gain/loss on the sale of a capital asset. |
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Term
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Definition
| (ending value - beginning value) + income return / beginning value. |
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Term
| Annualized Rate of Return Formula |
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Definition
| [(ending value - beginning value) + income return / beginning value] x 1/N |
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Term
| Nominal/Quoted Rate of Return |
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Definition
| The rate of return earned on an investment, unadjusted for inflation. |
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Term
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Definition
| The current/nominal rate minus the inflation. |
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Term
| Real risk-free rate of interest / k* |
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Definition
| The hypothetical interest rate existing on a security with no risk in a world without inflation. It is generally thought off as the interest rate that would exist on very short term T-bills in a world without inflation. |
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Term
| Inflation rate premium (IRP) |
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Definition
| The premium rate above the real rate of return that investors demand to compensate for inflation. |
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Term
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Definition
| The failure of a debtor to make interest or principal payments when they are due. |
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Term
| Default risk premium (DRP) |
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Definition
| An additional investment return to compensate investors for risking that the issuer may not pay the interest or principal. |
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Term
| Maturity risk premium (MRP) |
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Definition
| An additional return demanded by investors in long-term securities to compensate for the fact that the value of the securities with longer maturities tend to fluctuate more with interest rate changes. |
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Term
| Liquidity risk premium (LRP) |
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Definition
| An additional return for compensation for the risk that a security cannot be converted into cash quickly at a fair market price. |
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Term
| Nominal/Quoted Interest Rate Formula |
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Definition
| k* + IRP + DRP + MRP + LRP. |
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Term
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Definition
| The risk of fluctuations in security prices due to changes in the market interest rate. |
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Term
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Definition
| The risk that rising prices will eat away the purchasing power of your money, and that changes in the expected level of inflation will result in interest rate changes. |
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Term
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Definition
| The risk of fluctuations in security prices resulting from good/bad management decisions, or on the economy. |
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Term
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Definition
| The risk associated with a company's debt. If a company takes on too much debt, chances are higher that it will default. |
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Term
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Definition
| Risk associated with the inability to liquidate a security quickly and at fair market prices. |
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Term
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Definition
| Risk associated with overall market movements. There tend to be "bull markets" when all stock rise, and "bear markets" when all stock declines. |
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Term
| Political & Regulatory Risk |
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Definition
| Risk resulting from unanticipated changes in the tax or legal environment. |
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Term
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Definition
| The risk of fluctuations in security prices from the variability in earnings resulting from changes in the exchange rate. |
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Term
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Definition
| The risk to bondholders that a bond may be called away before maturity. |
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Term
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Definition
| The redeeming of a bond before its maturity. |
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Term
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Definition
| The elimination of risk by investing in different assets. It works by allowing the extreme good and bad returns to cancel each other out. |
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Term
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Definition
| A group of investments held by an individual. |
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Term
| Systematic or market-related or nondiversifiable risk |
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Definition
| The portion of a security's risk that cannot be eliminated through investor diversifications. It affects all securities. |
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Term
| Unsystematic or firm-specific or company-unique or diversifiable risk |
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Definition
| Risk or variability that can be eliminated through investor diversification. |
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Term
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Definition
| 1) Look at the variability of the average annual return. 2) Look at the uncertainty associated with the ultimate dollar value of teh asset. 3) Look at the distribution of ultimate dollar returns from one investment versus another. |
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Term
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Definition
| An attempt to ensure that an investor's strategy reflects the investment time horizon and is well diversified, generally with investments in several different classes. |
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Term
| Early Years Asset Allocation Benchmark |
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Definition
| 80% Common stock, 20% Bonds. |
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Term
| Golden Years Asset Allocation Benchmark |
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Definition
| 60% Common stock, 40% Bonds. |
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Term
| Retirement Years Asset Allocation Benchmark |
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Definition
| Diversify among various investment categories, but move out of common stock.Around 40% common stocks, 40% bonds, and 20% T-bills. |
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Term
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Definition
| A market in which all relevant info about the stock is reflected in the stock price. |
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